Best use of divorce cash before retirement?

Dear Retirement Adviser,
I will soon get $250,000 in divorce settlement cash. I have a 30-year mortgage owing about $120,000. If I pay off my mortgage, I'd still have $100,000 left to invest after I put aside $30,000 for an emergency fund. Do you have any suggestions as to how best to invest the remaining money? At 55 years old, I am self-employed making $50,000 with no retirement accounts to speak of. How do I ensure that I have money to live on when I retire in 15 years?

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Dear Diane,
It's not a slam-dunk that you should pay off your mortgage with the divorce settlement. My rule of thumb is, if you can earn more on your investments after taxes than what you pay after taxes on your mortgage, you shouldn't presume paying off your mortgage is the best way to go. On the other hand, having the house paid off before retirement is typically a sound financial goal.

The key to planning your retirement income should involve understanding the sources of retirement income available to you. As a divorced spouse, presuming the marriage lasted at least 10 years, you can get spousal Social Security benefits if you don't remarry. That could potentially allow you to take a spousal benefit based on your ex-husband's work record at your full retirement age and then switch to benefits based on your work record at age 70. You'd earn the maximum delayed retirement credits and maximize your Social Security benefits based on your own work record.

Deciding exactly how to invest the $100,000 shouldn't be decided by an advice column alone. The best answer depends on your attitude toward risk, your unique retirement income needs, and how comfortable you are investing in different investment products. If you don't want to pay a fee-only financial planning professional for his advice, take a look at a couple of 2028 target-date retirement mutual funds. That could give you an idea of how the professionals are investing these days. You should also look at asset allocation calculators, such as the one we have here at Bankrate.com.

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Dr. Don Taylor, in addition to answering our readers' questions about personal finance, is an assistant professor of business administration at Penn State Brandywine in Media, Pa. He holds a doctorate in finance and has earned both master's and bachelor's degrees in finance.

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